Dear friend,

Remember my rant on Friday about trying to make sense of what Hannover Re was doing with its numbers, despite sitting right opposite the people with all the answers?

Well those clever people at Keefe Bruyette and Woods have published a note that I think clarifies the situation somewhat.

“A swing factor in our 2007E combined ratio reconciliation is the "cycle management" element. Whilst natural catastrophes were low at 2.7% of P&C premiums (against an 8% budget) and reserve development was a further positive 9.0pp, management has guided that it would be incorrect to use a "clean" base of 113% going forward.”

So there was positive development, I don’t know why they didn’t just say this on Thursday!

Now here’s the good stuff,

“It is clear to us that current accident year loss ratio picks are being managed to balance prior year reserve development and catastrophe experience. Higher cats or more negative reserve development would just be balanced by lower current accident year loss ratios. A German based reinsurer is less vulnerable to the regulatory pressures that have affected US/Bermudian underwriters and Hannover Re intends to use this to manage earnings to smooth the reported impact of underlying portfolio volatility.”

There we have it — they are doing more of a de Niro in Raging Bull than a Hannover House of Horror.

It’s interesting that they probably wouldn’t be able to do this sort of thing if they were domiciled anywhere else — but you pays your money and you takes your choice!